States Struggle to Regulate Prediction Markets

Lawmakers grapple with the legal status of online platforms that allow bets on election outcomes, sports, and other events.

Apr. 4, 2026 at 3:05am

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A dynamic, abstract painting featuring overlapping geometric shapes and waves of bright blue, green, and purple colors, conveying the fast-paced and uncertain nature of prediction markets.The legal battle over regulating prediction markets highlights the complexities of governing new online trading platforms.Today in Nashville

Prediction markets, where people can wager money on the outcomes of events like elections or sports games, are facing legal challenges from several states that argue these platforms are operating illegal gambling businesses. However, the federal government has filed lawsuits against states that have tried to shut down these prediction market platforms, arguing they are a form of forecasting, not gambling. This legal battle highlights the complexities around regulating these new types of online trading platforms and the potential impact on state revenue from traditional gambling sources like lotteries.

Why it matters

The rise of prediction markets raises questions about fairness, oversight, and the potential impact on state budgets that rely on revenue from regulated gambling activities like lotteries. As these platforms grow in popularity, lawmakers are struggling to determine how to properly classify and regulate them.

The details

Companies operating prediction market platforms argue they are providing a forecasting service, not running a gambling operation. However, several states have issued cease-and-desist orders against these platforms, claiming they are operating illegal gambling businesses. The federal government has responded by filing lawsuits against states that have taken enforcement action, arguing the platforms are a form of legal trading, not gambling. This legal battle is playing out in multiple states, including Tennessee, where regulators ordered the platform Kalshi to stop operating, but the company challenged that move in federal court.

  • In 2026, the Commodity Futures Trading Commission filed lawsuits against Arizona, Connecticut, and Illinois after those states tried to shut down prediction market platforms.
  • Tennessee regulators recently ordered Kalshi to stop operating in the state, but a judge has temporarily allowed the company to continue while the legal dispute plays out.

The players

Oliver Roberts

A law professor at the University of Washington who has expertise on the legal issues surrounding prediction markets.

Kalshi

An online prediction market platform that is involved in legal battles with several states over the legality of its operations.

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What they’re saying

“Kalshi is now involved in high-stakes litigation nationwide regarding its own legal status, and it's currently unclear where the odds will swing.”

— Oliver Roberts, Law Professor

“Here in Tennessee specifically, officials have filed a cease-and-desist order with Kalshi saying it's online wagering is just like unlicensed sports wagering and therefore it's subject to state law.”

— Oliver Roberts, Law Professor

What’s next

The legal battle between the states and the federal government over the regulation of prediction markets is ongoing, and the outcome will likely have significant implications for the future of these platforms and their impact on state budgets.

The takeaway

The rise of prediction markets has created a complex legal and regulatory landscape, with states and the federal government at odds over how to classify and govern these new online trading platforms. As these markets grow in popularity, policymakers will need to carefully weigh the potential benefits and risks to determine the appropriate level of oversight and regulation.